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How the new US-China Cold War will play out for India

A new US-China Cold War is about to begin. Last week, US vice-president Mike Pence accused China of economic and political aggression to try and dominate the world, and pledged to combat this in every realm and continent. He listed Chinese military adventures, economic and political espionage, theft of technology, and massive aid programmes including debt-trap diplomacy.

China aims to dominate the 21st century. Its 2025 Vision aims to put China at the cutting edge of all high technologies — robotics, artificial intelligence, space, energy. This was not taken seriously when announced ten years ago. Pence has now given notice that it will be battled fiercely.

Donald Trump’s tweets and rants are so self-contradictory and arbitrary that analysts cannot spot policy coherence. What, for instance does Trump really want from China on trade? He keeps hammering China without chalking out a negotiating path that could clinch a deal. Trump’s approach suddenly begins to make sense if it is a Cold War tactic, and not simply a trade negotiation. The US will kick China in every way to prevent its rise, aiming ultimately for nothing less than regime change.

China has combined authoritarianism and state control with privatisation and globalisation in a unique way to achieve the fastest economic growth in history. Trump says China was allowed to enter the global trading and financial system without becoming a true market economy, hoping it would become a liberal state in due course. Hence, China got the “special and differential” status that the WTO bestows on developing countries, allowing them to maintain high trade and investment barriers even as rich countries lower theirs. Trump says this status has been grossly misused by China, and that in future it must “follow the rules”, meaning China must become a regular market economy with the low entry barriers of other OECD countries.

But China cannot agree, since this would end the stranglehold of the Communist Party on the economy. It hopes Trump is a temporary phenomenon that will fade away. But the anti-China mood now cuts across parties in the US. Even if the next US president is a Democrat, the new Cold War will at best weaken, not end. Europe and Japan also worry about, and want to curb, a dominant China.

HIGH STAKES: The US will kick China in every way to prevent its rise, ultimately seeking regime change

Right now Trump is still so arbitrary that he has not adopted Pence’s Cold War approach in any systematic way. That approach would require him to build ties with Europe, Japan and Canada, not attack them on trade and investment issues. He remains driven by gut feel and whim rather than clear-headed strategy.

Yet Pence has put his finger on a deep worry across the political spectrum in the US, and in other OECD countries. A Cold War looks like a strategy emerging from the mish-mash of Trump’s tweets. Many Europeans initially saw Trump as a wrecker of the international trade system. But almost all now want to use him to force China to liberalise its trade and investment rules, and to check Chinese cyber and military power.

Trump has isolationist tendencies, and in many ways has replaced traditional US internationalism with narrow nationalism. Yet he is not a classic isolationist. He has re-imposed sanctions on Iran, used a new law to sanction countries buying arms from Russia, and strongly backed a Saudi-led Sunni Arab front against Shia forces led by Iran. He has sent additional troops to Afghanistan and cut off aid to Pakistan for aiding militants. He is wary of military intervention but quick to use financial sanctions, which are very powerful.

What are the implications for India? First, wait and watch for the new approach to gel. That may take time. Till then India must accommodate at least some US trade demands. Trump has castigated India as “a tariff king”. Anyway, India should be less protectionist for its own good.
In time, as the new Cold War approach gels, India’s value as a long-term check on China’s domination will grow steadily, and it can hope for more preferential treatment. Trump’s efforts to open up the Chinese economy will yield India significant benefits.

The most pressing policy issue for India is whether to join RCEP (Regional Comprehensive Economic Partnership), a free trade area led by China that may be launched by the end of the year. Indian corporations are mostly dead opposed, but Indian diplomats are in favour. India must tilt towards the US in a new Cold War. Trump has already warned his Nafta partners not to sign free trade deals with China. India must get the message.

DISCLAIMER : Views expressed above are the author's own.

Author

Swaminathan S Anklesaria Aiyar is consulting editor of The Economic Times. He has frequently been a consultant to the World Bank and Asian Development Bank. A popular columnist and TV commentator, Swami has been called "India's leading economic journalist" by Stephen Cohen of the Brookings Institution. "Swaminomics" has been appearing as a weekly column in The Times of India since 1990. In 2008, The Times of India brought out the book "The Benevolent Zookeepers - The Best Of Swaminomics".

Swaminathan S Anklesaria Aiyar is consulting editor of The Economic Times. He has frequently been a consultant to the World Bank and Asian Development Bank.. . .

Author

Swaminathan S Anklesaria Aiyar is consulting editor of The Economic Times. He has frequently been a consultant to the World Bank and Asian Development Bank. A popular columnist and TV commentator, Swami has been called "India's leading economic journalist" by Stephen Cohen of the Brookings Institution. "Swaminomics" has been appearing as a weekly column in The Times of India since 1990. In 2008, The Times of India brought out the book "The Benevolent Zookeepers - The Best Of Swaminomics".

Swaminathan S Anklesaria Aiyar is consulting editor of The Economic Times. He has frequently been a consultant to the World Bank and Asian Development Bank.. . .